EU Commission and EU Parliament: Taxation of the digital economy

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Recipient email(s):

Recipient name(s):

Email yourself a copy?

There is growing evidence that the EU Commission will publish two proposals on the taxation of the digital economy and digital business models on March 21 2018.

These proposals are expected to consist of a
short-term/temporary measure, a turnover equalisation tax
– i.e. a tax assessed on turnover rather than profits.
However, this shall not be levied on all digital services, but
rather 'only’ on online advertising and on
services provided by mediation platforms, i.e. platforms that
arrange product deliveries or services between two market
participants (e.g. Uber, Airbnb, Amazon Marketplace, etc.).

If proprietary products or services are distributed via the
internet, then they shall accordingly not be taxed. According
to media reports, it is expected that companies will also only
be subject to tax if their multinational consolidated turnover
exceeds a total of €750 million ($924 million) per annum
Furthermore, an additional threshold may be stipulated with
regard to annual turnover from digital services within the EU
subject to turnover equalisation tax. By all accounts, this
will lie somewhere between €10 million and €20
million. The assessment basis for the tax shall be the gross
revenue (before costs have been deducted) on all production and
distribution levels (B2B/B2C). Both cross-border transactions
(within the EU and with third countries) and domestic
transactions shall be included. The tax rate is expected to be
approximately 2%. The tax paid may be deducted from the
assessment basis for foreign corporation tax as an expense.

The EU Commission would reportedly also like to propose the
concept of digital/virtual business premises as part of its
plans to introduce a common assessment basis for corporation
tax. To this end, the European Parliament’s
Economic Committee also decided to pursue such an approach on
February 20 2018. Consequently, business premises shall be
established if turnover exceeds €5 million per annum in a
member state and, regarding the company and the relevant member
state, if either:

more than 1,000 registered users from the state have
logged on in a month or visited the site;

more than 1,000 customers resident in the state have made
electronic agreements each month; or

the volume of the data collected in the state amounts to
more than ten per cent of the total data stored by the
company.

With regard to the distribution of consolidated profit, the
EU Parliament is considering adding a fourth
'data’ factor to the three factors (turnover,
payroll/employees and assets).

Furthermore, the OECD is reportedly working on an interim
report which is expected to be published on April 18 2018. A
wide range of national states – including Israel and
Italy – have already implemented similar proposals or
are in the process of reviewing them.

This article was prepared by WTS, the main sponsor
of International Tax Review's Indirect Tax Forum,
which will be held on March 22 - the day after these proposals
are due to be released - in Amsterdam. Follow this link for more details.